MARKET UPDATE November 3rd, 2023 |
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The month of October is now behind us and two months left ahead of us in 2023. We're in the home stretch as another year has sped by! Quite a bit of red on the monitor in October (more below), though the first three days of November have brought a respite from the declines. Data coming in on the economy continues to be strong, though the most recent numbers on employment may be signaling coming weakness. Fed left rates unchanged but signal that they “are still watching”. |
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“The optimist thinks this is the best of all possible worlds. The pessimist fears it is true.” - J. Robert Oppenheimer |
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THAT'S A LOT OF RED The last three months and, for that matter, the last two years have been tough for equity AND bond markets. It's easy to forget if you focus on the near-term numbers that the Fed's interest rate tightening campaign has done some damage to stocks and bonds. Although the tech centered Nasdaq 100 has had quite the stellar run this year, it hasn't been enough to offset the losses experienced since the 2021 highs. While long-term investors in the equity markets are accustomed to volatility, the shock for many is the decline in values related to bonds. If we are indeed nearer to the end of the monetary tightening cycle, then one would expect (over time) for bond returns to improve, particularly in light of higher current yields. But there lies the big question…are they (the Fed) done? |
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Price data only. Does not include dividends. Source: Koyfin |
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MI CASA MI CASA… Existing home sales fell to levels not seen since just after the Global Financial Crisis. Keep in mind that this is about the number of units, not price. Higher mortgage rates and low inventory of homes for sale are the drivers here. Existing home sales make up most of the housing market. Post summer sales of homes also drop off quite a bit - so we will have to see what the spring selling season brings with it in early 2024. |
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BUT PRICES ARE UP… A likely result of the lower inventory of homes for sale is that prices of homes continue to rise - seven months of consecutive price gains, thus far. On a year over year basis, the Shiller index rose 2.6% and the most recent monthly reading was the highest since 1987. The Federal Housing Finance Agency (FHFA) in a different information release, found that home prices had increased 5.6% from a year earlier. |
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LABOR COSTS HIGHER A gauge of wages and benefits, the Employment Cost Index (ECI) published quarterly by the BLS showed another quarterly increase. While this last quarterly print is an improvement over the past 8 quarters, it did increase at a faster rate than the immediately preceding quarter. The current index doesn't pick-up the increase in wage costs that will flow from recent union contract activity. That will show up down the road. |
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RIGHT TREND, BUT WILL IT STICK? Annualizing the ECI for the trailing four quarters, a better picture emerges and confirms that downward trend. Again, this isn't picking up the impact of recent union activity/new contracts. But if ECI continues to fall on this measure, that would be a good sign for inflationary pressures coming from the labor market (i.e., “cost-push”) |
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UNEMPLOYMENT RISING The latest data from the Department of Labor Statistics shows the unemployment rate ticked up to 3.9% from a low in April of 3.4%. That's generally good news (as perverse as that sounds) when it comes to interest rates. While unemployment is still well below where it was in late 2021, this most recent number may signify that worries around the labor market might be easing. |
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NO MUCHO DINERO… Rainy day cash reserves for American consumers have been falling. The bite of higher prices is showing up in the amount folks are able to save and we have matched the lowest level since early 2022. But consumer spending, as we mentioned last week, continues to chug along. One way of looking at this is that when you're confident about the future, you don't need to keep such a big cushion in savings. Given continued low unemployment and robust economic growth, that view is not so far-fetched. |
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WEEKEND READING & LISTENING - Workers Keep Getting Big Raises - That's a Problem for the Fed (WSJ)
- US Deficit a 'More Serious Problem Than Ever Before" (Marketwatch)
- Redefining Retirement - Ted Waggenpack (TedX)
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